View Full Version : Car Buying Advice (financial vs models)
Folks, my lease for a Toyota Rav 4 Sport is up this July. I'm left with a few choices. The Rav has under 15K miles and is 2013 model, so essentially brand new. I traveled so much the last few years, it didn't give driven much at all. I like this Rav 4, and the new versions (1) look more like a station wagon than small SUV and (2) no V6 offered now, so I would not go with another Rav 4 regardless.
The buy out is approx $ 17k. That's not a bad price for what's essentially a brand new Rav 4 Sport loaded with V6. I could purchase in cash, or get a used car loan from the bank or credit union (not sure of rates but I'd expect quite low), or turn it in and lease something else. A small SUV, with 4WD, and some nads from a V6, fits my needs well, but few now offer the V6.
Of my current options, what makes most sense? If the car had its usual miles of 15k per year for the 36 month lease, I'd just turn it in and repeat as I have for many moons.
Advice?
Spurholder
04-09-15, 10:08
First - if you like it, keep it.
I'll never understand why Toyota killed the V6 option in the RAV4. Powerful, yet still gets very good MPG (as compared to similar-sized SUV's)
Makes yours a little more valuable, especially with the low mileage.
Only way I'd get rid of it would be to sell it to an individual for a premium price.
Did you run it through KBB or another "here's what my car is worth" website?
sevenhelmet
04-09-15, 10:08
If you like your Rav4, you can keep your Rav4. ;)
$17K is an excellent price to just buy and keep what you're driving, especially if it suits your needs. At only 15K miles it will undoubtedly last a long time, and you can either pay cash or pay it off very quickly. It really comes down to how much you like the Rav4. Either way, buying or leasing something else will likely be more expensive.
First - if you like it, keep it.
I'll never understand why Toyota killed the V6 option in the RAV4. Powerful, yet still gets very good MPG (as compared to similar-sized SUV's)
Makes yours a little more valuable, especially with the low mileage.
Only way I'd get rid of it would be to sell it to an individual for a premium price.
Did you run it through KBB or another "here's what my car is worth" website?
I believe the loss of the V6 had to do with pressure from the gubment that manufacturers have to make MPG standards. Not sure how the formula works for the manufacturers, but I think that's the main driver. Ford Escape only comes in 4 now too, and there's essentially no small SUV offering a V6 now. The interior of the Rav lacks compared to others, but the engine more than makes up for it. It's a great V6 that's been a winner for Toyota a long time. I didn't try that site, but will check it out.
If you like your Rav4, you can keep your Rav4. ;)
$17K is an excellent price to just buy and keep what you're driving, especially if it suits your needs. At only 15K miles it will undoubtedly last a long time, and you can either pay cash or pay it off very quickly. It really comes down to how much you like the Rav4. Either way, buying or leasing something else will likely be more expensive.
The main issue is, pay cash and that's 17k that could be working for you in other investments or finance allowing that $$$ to be used for other possibly more profitable things? I need to see what the rates are for it, which is what would be the decider I guess.
As everyone said, if you like your Rav4, I would keep it. My only worry would be that even though the miles are low, it is still past the 36mo warranty period. Yes Toyotas are reliable, but you never know. Always scares me for a daily driver.
I also agree that its a shame that small SUVs don't come with V6s anymore. I found the cure in a SantaFe Sport 2.0T. Yes its a 4 banger, but with a turbo the power is more than enough.
I would hate to give up the cash, for me its better to retain it in an investment account or even bank account that give it to the dealer. Not sure what the used car loan rates are now, but if the interest is less than the rate of return on an investment that money could bring, might be better off with the loan.
I think you should write the dealer a check.
SomeOtherGuy
04-09-15, 12:18
The main issue is, pay cash and that's 17k that could be working for you in other investments or finance allowing that $$$ to be used for other possibly more profitable things? I need to see what the rates are for it, which is what would be the decider I guess.
With my credit union rates are silly low right now, so I would probably take out a loan for it even if you have the cash sitting in the bank. Rates won't always be this low and you might want the cash for something else. I wouldn't suggest this if rates were higher than 3-4% but I think they're around 2.45% here. You may be able to do even better than that.
As for keep or not, I think you already decided, but I'll just say I've bought five new vehicles in the last 15 years. Of those I genuinely liked ONE, which I kept 5.5 years, and traded because I was worrying about its age and condition. The replacement (a brand new Honda Pilot) hasn't been so great, and in hindsight I wish I had just kept the older Suburban. I'm probably going to end up buying another one anyway, hopefully to keep for 8-10 years. If you find something you truly like, keep it as long as you can.
The main issue is, pay cash and that's 17k that could be working for you in other investments or finance allowing that $$$ to be used for other possibly more profitable things? I need to see what the rates are for it, which is what would be the decider I guess.
Rates are stupid low right now. The unsecured line of credit I have at the bank is <3.5%. Can't imagine a secured loan being more than that.
Rates are stupid low right now. The unsecured line of credit I have at the bank is <3.5%. Can't imagine a secured loan being more than that.
At those rates or lower, makes sense to finance the 17k and put that $$ to other investments. Hell, my equity line is under 3% currently.
Do not pay cash. The cost of borrowing, assuming you have good credit, is cheap right now. Just went through USAA(don't know if you are eligible) and have a 1.9% loan. The rate you earn on investing the $ vs. the rate you pay on the loan makes financing an easy decision. Also, if you are the only owner of the car, know its history, and know it hasn't been abused...then I would keep it for several yrs. and see how much better it rides and looks once paid off.:D
Do not pay cash. The cost of borrowing, assuming you have good credit, is cheap right now. Just went through USAA(don't know if you are eligible) and have a 1.9% loan. The rate you earn on investing the $ vs. the rate you pay on the loan makes financing an easy decision. Also, if you are the only owner of the car, know its history, and know it hasn't been abused...then I would keep it for several yrs. and see how much better it rides and looks once paid off.:D
On a used car? That's impressive!
Crow Hunter
04-09-15, 13:36
Find out what you can get a loan for.
If the % is less than or equal to what you can get a guaranteed return on your $17,000 it is a no brainer. (Think FDIC CDs, T-Bonds, etc)
If you don't have a guaranteed return that is greater than the loan, it becomes more complicated. Then you need to determine what your risk adjusted return is going to be on your $17,000 and see if that is greater than your loan amount. If it is, go for it. If not, then you will need to determine how lucky you feel.;)
Sure, the stock market has been paying back multiple % point higher than your average loan %, but that isn't guaranteed. Far from it, you can lose 50% of it in an instant.
Personally, I don't borrow money on things that are guaranteed to go down in value unless I am getting something worth more in return. For example, I borrowed $1,500 on my last new truck purchase because I got an extra $2,000 off the price for a cost of like $36 in interest. The dealership got an incentive from GMAC to get someone signed up with a loan, no matter what the amount was. :D
No matter how few miles or how good of a condition the Rav 4 is, it will continue to go down in value and you should take that into account when you are looking at how much more you can earn with that $17,000.
I would hate to lose $8,000 of the $17,000 in a stock market decline and also owe $16,500 on a vehicle worth only $15,000 or such.
Don't forget that where the car lived affects it's value to many of us. I car from Boston is not as desirable as one from Phoenix. Before I did anything I would check the Blackbook value.
First check the value of the Rav4. Around here those things hold their value well. If you are already in the green then borrowing is an easy choice for me. You already are use to the payments and for me its much easier to budget 300 bucks a month than to save up 17,000 dollars.
On a used car? That's impressive!
We have 2 loans w/USAA. A new car(stupid, should have bought like new used and taken advantage of deprec.) loan at 1.9% and a used car loan(2.78%) just taken out on a 2014. We also each have all 3 scores over 800 so also helps. Cost of borrowing can be affected by several factors. If you are over 800 with all three scores, good job, assets, etc. I would talk to local banks about what they may offer you. The rate you see advertised applies to the general public; not everyone.
We have 2 loans w/USAA. A new car(stupid, should have bought like new used and taken advantage of deprec.) loan at 1.9% and a used car loan(2.78%) just taken out on a 2014. We also each have all 3 scores over 800 so also helps. Cost of borrowing can be affected by several factors. If you are over 800 with all three scores, good job, assets, etc. I would talk to local banks about what they may offer you. The rate you see advertised applies to the general public; not everyone.
I'm GTG there yup. I'm in the Harvard Alumni Credit Union. They may be my best option rate wise. I'll have to check that one.
I'm GTG there yup. I'm in the Harvard Alumni Credit Union. They may be my best option rate wise. I'll have to check that one.
Exactly what I would do. Banking has a side to it not many see. Everyone with any kind of assets should be personally recognized by AT LEAST one person when they walk into their bank. Being born and raised in the South, I would relate it to the good 'ol boy network(which is a good thing). The banker knows you. He knows you have good credit. He knows you have some assets. Quite possibly some mutual friends/acquaintances. He knows you have a job. He's met your wife and kids. You specifically talk to him every so often. He knows you are a hard worker with a sense of integrity. Guess who gets a lower rate than the general public? Of course, meeting all of these qualifications is impossible for most of the population so actually having a personal, working relationship with a bank is not even on their radar, know how, or ability.
Using credit scores as an indicator for home/car loans is a new phenomenon. Prior to roughly the beginning of the 90's, the personal relationships I described above were extremely important factors in loan considerations. Many influential(higher ups in the corp.) banking industry members are older and remember these days when judgement was used, not just stark metrics. They are now the ones in positions to lower rates when an excellent customer comes in for a loan and they haven't forgotten, nor stopped using, some of the old metrics. I have seen this personally and rely upon it. My FIL recently retired as Executive Vice President of one of the country's largest banks. He has confirmed repeatedly the importance of these personal relationships when decisions are being made.
Talk to the CU, see what your monthly payment is going to be. I suspect that if you're willing to treat it as another 3-yr lease, you'll be at basically the same price in three years but you'll own a recent vehicle completely in the clear.
CU Auto Loans are going to be the best price, and since you're securing financing from a third party, as far as the dealership is concerned you're paying cash (try and negotiate them down as much as possible).
$17k for a Rav4 you know the history of is really not too bad, if the interest rate for it is within reason then that sounds like the most practical plan - realistically it's another 6 years from needing any sort of significant maintenance (maybe timing chain, bearing repack, brakes and tires on top of oil changes - that's trivial), so that's going to be a really affordable to operate automobile.
Exactly what I would do. Banking has a side to it not many see. Everyone with any kind of assets should be personally recognized by AT LEAST one person when they walk into their bank. Being born and raised in the South, I would relate it to the good 'ol boy network(which is a good thing). The banker knows you. He knows you have good credit. He knows you have some assets. Quite possibly some mutual friends/acquaintances. He knows you have a job. He's met your wife and kids. You specifically talk to him every so often. He knows you are a hard worker with a sense of integrity. Guess who gets a lower rate than the general public? Of course, meeting all of these qualifications is impossible for most of the population so actually having a personal, working relationship with a bank is not even on their radar, know how, or ability.
Using credit scores as an indicator for home/car loans is a new phenomenon. Prior to roughly the beginning of the 90's, the personal relationships I described above were extremely important factors in loan considerations. Many influential(higher ups in the corp.) banking industry members are older and remember these days when judgement was used, not just stark metrics. They are now the ones in positions to lower rates when an excellent customer comes in for a loan and they haven't forgotten, nor stopped using, some of the old metrics. I have seen this personally and rely upon it. My FIL recently retired as Executive Vice President of one of the country's largest banks. He has confirmed repeatedly the importance of these personal relationships when decisions are being made.
That's what I love about my bank. I walk in the door and everyone knows who I am. The president told the mortgage people to write our construction loan with minimal documents because he knew my wife and I, what our employment was like, where our home site was and what home values were in the area.
That's what I love about my bank. I walk in the door and everyone knows who I am. The president told the mortgage people to write our construction loan with minimal documents because he knew my wife and I, what our employment was like, where our home site was and what home values were in the area.
EXACTLY!
As everyone said, if you like your Rav4, I would keep it. My only worry would be that even though the miles are low, it is still past the 36mo warranty period. Yes Toyotas are reliable, but you never know. Always scares me for a daily driver.
I also agree that its a shame that small SUVs don't come with V6s anymore. I found the cure in a SantaFe Sport 2.0T. Yes its a 4 banger, but with a turbo the power is more than enough.
I would hate to give up the cash, for me its better to retain it in an investment account or even bank account that give it to the dealer. Not sure what the used car loan rates are now, but if the interest is less than the rate of return on an investment that money could bring, might be better off with the loan.
Toyota's are rock solid if they are maintained properly. Doesn't matter if it has 20k or 200k miles. Maintenance is key. I had an old Celica that had 220k miles before I sold it when I was in college. Ran like a champ except for a leak in the radiator ($200 fix).
At those rates or lower, makes sense to finance the 17k and put that $$ to other investments. Hell, my equity line is under 3% currently.
This seems to be the best option. Keep the car and make payments, and put your money in a better investment.
As they say, cars are bad investments to begin with. They are actually not investments unless you have a rare classic/exotic car.
Good luck to you.
brickboy240
04-10-15, 11:41
Leasing a car is a total rip off. It is like leasing a house vs. buying. You pay on something you never really own. Why do that?
Besides, you always have a note...again why do that?
Since you don't put many miles on vehicles...I'd buy that same vehicle (as long as it suits your needs) flat out and just drive it forever. If I only put that many miles on my trucks...hell...I could keep a pickup for 15-20 years! LOL
Besides, it is a Toyota...it will run forever if you treat it half way nice. My 06 Tundra went 260k miles before it gave me troubles.
Leasing and financing cars is a total waste of money. Buy that Rav4 and save your money. Work for yourself...not the car dealers and auto finance guys! LOL
Our cars are old and paid for but well maintained. We usually keep cars 10-15 years and put 150-200k miles on them before getting something new.
sevenhelmet
04-10-15, 11:48
FWIW, dealers in your area are charging about $22K sticker for a basemodel Rav4 with your MY and miles (based on kbb.com). With your options, I think $17K is a good price, whether your borrow the money or pay cash. Paying cash does have the advantage of improving your monthly cash flow for more savings or other priorities, while borrowing lets you keep the base money for investing. It comes down to your priorities.
brickboy240
04-10-15, 12:06
If you leave the 17 grand in an ordinary saving account...you earn diddly squat in interest.
Even a short term loan (2-3yrs) to pay the 17 grand note is going to charge a few percentage points of interest.
Pay cash for the car if you can...it is not as if the 17 grand is earning tons in interest right now anyways. You might be able to negotiate a lower sales price because you are going to pay cash. Paying cash is usually easier for dealers and it moves a car quickly. They might be willing to knock a little more off and you get the vehicle for 15 or 16 grand who knows?
Then just keep it, keep the maintenance up and drive the living crap out of it. Who cares if you have no warranty left - you don't put many miles on a car and it is a Toyota. Chances are it will never see the shop. Neither of my Tundras saw the shop until well past the 100k mile mark. At your mileage rate...you have many years before that happens.
I would also dog ear a small amount in savings for any emergency repairs that might crop up. This also makes having no warranty less stressful. Also...warranties don't cover ALL things that might break down.
Then...don't ever lease a car again. Leasing cars makes no economic sense at all if you ask me.
ForTehNguyen
04-10-15, 12:26
how much is the car worth on the used market since you are way under mileage? If the market value is worth more than the buyout you can sell it, pay the dealer the buyout and pocket the difference. In the end the dealer either wants the car back or the buyout. If you give the dealer the car back that is worth more than the buyout, then the dealer pockets that extra gravy instead of you.
jerrysimons
04-10-15, 12:32
Leasing a car is a total rip off. It is like leasing a house vs. buying. You pay on something you never really own. Why do that?
Besides, you always have a note...again why do that?
Since you don't put many miles on vehicles...I'd buy that same vehicle (as long as it suits your needs) flat out and just drive it forever. If I only put that many miles on my trucks...hell...I could keep a pickup for 15-20 years! LOL
Besides, it is a Toyota...it will run forever if you treat it half way nice. My 06 Tundra went 260k miles before it gave me troubles.
Leasing and financing cars is a total waste of money. Buy that Rav4 and save your money. Work for yourself...not the car dealers and auto finance guys! LOL
Our cars are old and paid for but well maintained. We usually keep cars 10-15 years and put 150-200k miles on them before getting something new.
Agreed, but at this point it is done for the OP. I wouldn't recommend doing a lease to anyone. The only way it makes sense is if you are the kind of person that wants to drive the latest and greatest every few years and are fine with perpetual payments (which itself is questionable wisdom, but on the flip side I drive junky yet reliable old cars so I can have nice new guns!:jester:). You always end up paying more for a car by leasing it first then paying it off. The ops consideration at this point is how much it would cost to replace the RAV4 with another vehicle of similar quality and history that would equally meet his needs versus just paying the 17K to keep it.
If you leave the 17 grand in an ordinary saving account...you earn diddly squat in interest.
The $ will be at work not sitting so paying cash is fiscally ignorant.
sevenhelmet
04-10-15, 14:13
The $ will be at work not sitting so paying cash is fiscally ignorant.
That's a little harsh, considering how little you know of someone else's financial situation, don't you think? Maybe cash flow and not having payments is more important in the long run. Maybe. Just advising a little caution when calling people ignorant.
brickboy240
04-10-15, 14:23
Yeah but in a regular savings account, you are not going to earn as much interest as a bank or credit union will charge you on interest on a car loan. Hello!
I agree...the 17 grand can be working for you...but not sitting in a savings account.
However, if the OP needs a car and the current car has been reliable and it appears to have low mileage....what the hell else are you going to buy for 17 grand that will have this low mileage and a known history? Nothing. So if the car suits his needs...I'd buy it outright. Then he has no more monthly car payments or the interest that goes along with it.
Don't call me ignorant....I would NEVER lease a car. LOL
I buy slightly used cars and drive them until they are junk. Always having a car note is silly if you ask me. Cars are a lousy place to put money.
Yeah but in a regular savings account, you are not going to earn as much interest as a bank or credit union will charge you on interest on a car loan. Hello!
I agree...the 17 grand can be working for you...but not sitting in a savings account.
People are recommending he do a little interest rate arbitrage. It's doubtful he's keeping $17K of cash in a low-yield savings account. I'm guessing if he's even considering getting a loan for $17K and trying to play the arbitrage game, this that the money is invested in equities as it's difficult to find 3%+ yields on short term bonds or near-cash vehicles as you surmised.
It's good (interest rate arbitrage) when it works out. Everyone tends to underestimate the risks when you have a situation where the central banks of the world are buying S&P futures to prop up the market and otherwise easing across the globe and you've had a faithful march upward in the markets for many years as a result.
Having a car loan (or lease) isn't silly or not. It's just an individual decision. Sometimes that decision is more expensive, but it fits the individual's circumstances better. Or perhaps they have tax advantages for leasing not discussed in the 5 line OP (like with a lease) that make the decision not a clear cut as it may seem, etc. Be careful of judging others when you don't have all the facts and even when you do.
brickboy240
04-10-15, 15:05
By saying "always having a car note" I meant leasing or having a car not ALL the time. Leasing involves having a note all the time (..on something you do not own).
Yes, we all have to have notes on cars at times but if you can pay cash or at least keep the note to as short a term as possible this makes more sense. the way the OP framed this question...it seemed as if he was considering paying 17 grand cash for the car...so I assumed he had 17 grand at arms length.
There may be some tax advantage to leasing a car but I have never heard of one. We probably would need more info from the OP to help in his decision when you get down to it. However for 99% of us...leasing a car helps the car dealerships and finance companies...not the end user. Most financial advisers would advise their clients not do to this.
By saying "always having a car note" I meant leasing or having a car not ALL the time. Leasing involves having a note all the time (..on something you do not own).
Yes, we all have to have notes on cars at times but if you can pay cash or at least keep the note to as short a term as possible this makes more sense. the way the OP framed this question...it seemed as if he was considering paying 17 grand cash for the car...so I assumed he had 17 grand at arms length.
There may be some tax advantage to leasing a car but I have never heard of one. We probably would need more info from the OP to help in his decision when you get down to it. However for 99% of us...leasing a car helps the car dealerships and finance companies...not the end user. Most financial advisers would advise their clients not do to this.
There are tax advantages to leasing in certain situations, such as for business owners that can deduct some of the costs.
Regarding the note vs. no note on the car, paying $17K in cash forgoes the potential for higher returns elsewhere, so there's an opportunity cost to that decision. Pay the cash up front, and lose both the access to it and the ability to generate higher returns elsewhere.
While I'm an advocate of paying cash if you're able, I fully recognize that there's a cost to this decision and that likely, if the financial sun is shining, that I could've and likely would've earned more elsewhere albeit at a greater risk to my principle.
Having a short term loan vs. a long term one depends, in this case, largely on prevailing interest rates and expectations for the future. If I could lock in a 2%, 30 year long loan on whatever, when I knew that rates would be much higher a year in the future, it would behoove most anyone to do so vs. paying cash. While it's true that most people aren't financially sophisticated and will just use the "savings" from a longer note to spend more, that's not true of everyone so it's impossible to paint with a broad brush.
Regarding having a note/lease all the time, if you're able to access highly subsidized leases and can live with the restrictions, they're not as financially toxic as they're made out to be, given that average people buy a new car in <6 years anyway, and as such, given the 72+ month loans that are now common, will not have the vehicle paid off before it's traded in and may even be underwater. This is particularly true if the vehicle is in an accident, as with a lease, you have a guaranteed buy-out value listed in the contract. This option does not exist when buying and as such, the reduced value in the accident it on you to absorb vs. the leasing company. In that case, someone might have been better off leasing and giving themselves that option. In addition, leasing almost always offers a continual warranty period (assuming you're within mileage limitations) and as such, the buyer has fixed a variable expense (car repairs) that can be large if reliability is not up to par. So, as with most things in life, there are plus' and minus'.
While it's admirable and advisable to buy something used and drive it into the ground, most people don't do that, nor care to, as we tend to spend more on booze and vehicles as our incomes increase.
The own vs. rent argument is a red herring. Most people will never own their vehicles outright for very long before purchasing another and everyone needs transportation. Some just budget that monthly as a continual expense. Is that more costly? Perhaps, but it depends on more factors than you can determine in a typical internet forum post.
All that being said the least costly option with vehicles will (on average) be to buy something used and drive it into the ground, but not always. The answer is, it depends.
There are tax advantages to leasing in certain situations, such as for business owners that can deduct some of the costs.
Regarding the note vs. no note on the car, paying $17K in cash forgoes the potential for higher returns elsewhere, so there's an opportunity cost to that decision. Pay the cash up front, and lose both the access to it and the ability to generate higher returns elsewhere.
While I'm an advocate of paying cash if you're able, I fully recognize that there's a cost to this decision and that likely, if the financial sun is shining, that I could've and likely would've earned more elsewhere albeit at a greater risk to my principle.
Having a short term loan vs. a long term one depends, in this case, largely on prevailing interest rates and expectations for the future. If I could lock in a 2%, 30 year long loan on whatever, when I knew that rates would be much higher a year in the future, it would behoove most anyone to do so vs. paying cash. While it's true that most people aren't financially sophisticated and will just use the "savings" from a longer note to spend more, that's not true of everyone so it's impossible to paint with a broad brush.
Regarding having a note/lease all the time, if you're able to access highly subsidized leases and can live with the restrictions, they're not as financially toxic as they're made out to be, given that average people buy a new car in <6 years anyway, and as such, given the 72+ month loans that are now common, will not have the vehicle paid off before it's traded in and may even be underwater. This is particularly true if the vehicle is in an accident, as with a lease, you have a guaranteed buy-out value listed in the contract. This option does not exist when buying and as such, the reduced value in the accident it on you to absorb vs. the leasing company. In that case, someone might have been better off leasing and giving themselves that option. In addition, leasing almost always offers a continual warranty period (assuming you're within mileage limitations) and as such, the buyer has fixed a variable expense (car repairs) that can be large if reliability is not up to par. So, as with most things in life, there are plus' and minus'.
While it's admirable and advisable to buy something used and drive it into the ground, most people don't do that, nor care to, as we tend to spend more on booze and vehicles as our incomes increase.
The own vs. rent argument is a red herring. Most people will never own their vehicles outright for very long before purchasing another and everyone needs transportation. Some just budget that monthly as a continual expense. Is that more costly? Perhaps, but it depends on more factors than you can determine in a typical internet forum post.
All that being said the least costly option with vehicles will (on average) be to buy something used and drive it into the ground, but not always. The answer is, it depends.
As you point out well, there's various potential advantages to leasing, and many financial advisers (including mine) prefer it. I like leasing cars. It lowers monthly costs (allowing me to put that $$ to other things), it allows me to pay for essentially what I use for the equity in the car, the rates (called the "money factor" on a lease) can be lower than buying (it was zero for 36 months on this lease), has some tax advantages (but not enough to make leasing a no brainer by any means), and gets me into a new car every few years, which I like.
That driving cars into the ground shit was OK when I was young and broke, but although having a car payment is not the best use of money per se, you can't but piece of mind. I remember wondering if my car was going to start, or leave me stranded, etc, which did happen when I had old used cars, and sucked donkey nads.
Yes, buying a 1-2 year old low mileage car and driving it into the ground is, on paper, most cost effective on the balance.
It's also a suck way to live in my view and I love me some new car smell. Others mileage may vary.
That's a little harsh, considering how little you know of someone else's financial situation, don't you think? Maybe cash flow and not having payments is more important in the long run. Maybe. Just advising a little caution when calling people ignorant.
I didn't call anyone ignorant. I used the term "fiscally ignorant." This was predicated on several of Will's posts with the indication being he has assets. The discussion he and I had obliquely, basically is: "We are not poor and have some financial acumen." Then JS steps in, obviously didn't read the whole thread, and offered up advice erroneously based.
Before you step in with advice maybe you should read the thread, sort through it, and then be quiet.
At those rates or lower, makes sense to finance the 17k and put that $$ to other investments. Hell, my equity line is under 3% currently.
Don't forget about risk. What if you wreck the RAV4 and get a horrible payoff from insurance? What if your 17k investment tanks and you're out the some of that money and stuck with the payment on the RAV4?
Cars depreciate and it's hard for me to justify a car payment on a 17k car today when it'll be worth 5k in a few years.
There are tax advantages to leasing in certain situations, such as for business owners that can deduct some of the costs.
Regarding the note vs. no note on the car, paying $17K in cash forgoes the potential for higher returns elsewhere, so there's an opportunity cost to that decision. Pay the cash up front, and lose both the access to it and the ability to generate higher returns elsewhere.
While I'm an advocate of paying cash if you're able, I fully recognize that there's a cost to this decision and that likely, if the financial sun is shining, that I could've and likely would've earned more elsewhere albeit at a greater risk to my principle.
Having a short term loan vs. a long term one depends, in this case, largely on prevailing interest rates and expectations for the future. If I could lock in a 2%, 30 year long loan on whatever, when I knew that rates would be much higher a year in the future, it would behoove most anyone to do so vs. paying cash. While it's true that most people aren't financially sophisticated and will just use the "savings" from a longer note to spend more, that's not true of everyone so it's impossible to paint with a broad brush.
Regarding having a note/lease all the time, if you're able to access highly subsidized leases and can live with the restrictions, they're not as financially toxic as they're made out to be, given that average people buy a new car in <6 years anyway, and as such, given the 72+ month loans that are now common, will not have the vehicle paid off before it's traded in and may even be underwater. This is particularly true if the vehicle is in an accident, as with a lease, you have a guaranteed buy-out value listed in the contract. This option does not exist when buying and as such, the reduced value in the accident it on you to absorb vs. the leasing company. In that case, someone might have been better off leasing and giving themselves that option. In addition, leasing almost always offers a continual warranty period (assuming you're within mileage limitations) and as such, the buyer has fixed a variable expense (car repairs) that can be large if reliability is not up to par. So, as with most things in life, there are plus' and minus'.
While it's admirable and advisable to buy something used and drive it into the ground, most people don't do that, nor care to, as we tend to spend more on booze and vehicles as our incomes increase.
The own vs. rent argument is a red herring. Most people will never own their vehicles outright for very long before purchasing another and everyone needs transportation. Some just budget that monthly as a continual expense. Is that more costly? Perhaps, but it depends on more factors than you can determine in a typical internet forum post.
All that being said the least costly option with vehicles will (on average) be to buy something used and drive it into the ground, but not always. The answer is, it depends.
It all depends how you see it and how you manage your finances.
I for one, have never leased a car. I could've leased my current car when I first bought it brand new. Let me put it in a specific example.
In 2006 I wanted a brand new Infiniti sports car. I had the option of leasing it brand new. I needed to put a downpayment of $4k Cash and a monthly payment of $500 for a term of 4years IIRC.
In 4years, that totals out to $28000. after 4 years, I still don't own that car!!!
If I bought a pre-owned car instead, say a 2-3yr old Infiniti with warranty remaining (and I buy extended warranty anyway), I would've paid less than $28k for the car and own it outright in 4yrs.
Does this makes sense? Why would I lease??? I take very good care of all my vehicles whether they have warranty or not.
Now-adays, I'm smarter and buy used cars in cash and have the Title. Both my Car and motorcycle are paid off, and I'm able to invest in other things or enjoy my expendable money without having a note/lease.
Yes, most people do not know how to take care of their cars. Which is why they never last past 10yrs or 200K miles. As an adult, taking care of your vehicle and making it last for a long time is very easy. I've been doing it since I was in college. If you prefer to spend your money on booze and other things, that is your choice, but not a smart way to spend your money.
Just my 2c based on my experience and knowledge from buying many vehicles over the years. If you wanna lease and it makes sense for you, thats your choice. I never ever recommend it.
ForTehNguyen
04-10-15, 19:04
i got 1.9% for 60 months on my current car. I put zero down, no point. Took the $15k I wouldve put down into stocks, made 20%
i got 1.9% for 60 months on my current car. I put zero down, no point. Took the $15k I wouldve put down into stocks, made 20%
Very nice.
My dad gets those deals all the time because he has near-perfect credit. What he does is take out a line-of-credit on his house and pay the car off. Very good way to do it and you pay no interest at all.
i got 1.9% for 60 months on my current car. I put zero down, no point. Took the $15k I wouldve put down into stocks, made 20%
On a 1.9% massively subsidized interest setup, it seems silly not to finance through the car mfg. -- but realistically that interest delta is built into the vehicle price since that kind of financing is only through new or a select few certified used cars, and I think is a non-trivial contributor to the massive drive-off-the-lot depreciation, since the real value of the vehicle is thousands of dollars lower, and they've figured out the cars sell better when the buyer things they're getting great financing (and those with poor credit scores just get absolutely wrecked, and make absurd amounts of money for financing providers if they keep up with payments for more than 24mo - in a 60mo loan somebody with mediocre credit is buying that car twice, and is basically never not upside-down).
By the same logic, my approach of acquiring $3000 and lower valued cars and nothing else is still the winning answer - The interest and dividends from my most conservative non-Roth stuff still dwarfs the maintenance cost to keep my old vehicles running... but I'm driving around vehicles that lose to Priuses in drag races (I was at full throttle bang shifting at valve float and losing ground - I don't think the guy in the prius was even at WOT), so my assumption is that anybody who has a use case to lease a newer vehicle is probably somebody who values the performance and luxury of newer vehicles a lot more than I do... at this point my fleet of dream cars is still frankly haughty and elitist (a ~2005 Tacoma, ~2007 Outback, and a C4 Corvette I can turn into a Roadkill Kart), but comes in under the price of any new luxury SUV for all three.
sevenhelmet
04-10-15, 19:35
I didn't call anyone ignorant. I used the term "fiscally ignorant." This was predicated on several of Will's posts with the indication being he has assets. The discussion he and I had obliquely, basically is: "We are not poor and have some financial acumen." Then JS steps in, obviously didn't read the whole thread, and offered up advice erroneously based.
Before you step in with advice maybe you should read the thread, sort through it, and then be quiet.
Despite what you think, I have read the thread and offered my input. While there seem to be some differing opinions, I think Will is getting the perspective he was looking for. Since this is at risk of becoming a threadjack, I will take advice from an obviously superior intellect, and "be quiet".
Averageman
04-10-15, 20:18
I have mixed feeling about this.
First I have noticed that having the note paid off may be a great feeling, but
By the time it is paid off the technology of the vehicle is light years behind what is available.
Advances in technology mean little to the guy who fixes them outside the dealership. You aint taking this to your local guy, it's going to the dealership and you better hope they have kept up. Cha Ching !
Little things are gonna drive you crazy in the short term and they are going to go out. The window sticks, the lights are acting nuts and the front end is slowly wearing away all at once.
So in the long term, paid off is nice, but what is your technology and sanity worth to you?
All of that being said I have a 11 year old truck showing all of the above age symptoms and I will drive that mutha right in to the ground. At 188K I have recordes of every oil change, tire change and any unique work that has been done to it. At this point I would like to get 500K before I take it in and trade it for another just to see the salesmans face.
When I want a nice ride and some fun I drive the Mustang GT and enjoy the new stuff it has to offer.
Eurodriver
04-10-15, 20:47
On a 1.9% massively subsidized interest setup, it seems silly not to finance through the car mfg. -- but realistically that interest delta is built into the vehicle price since that kind of financing is only through new or a select few certified used cars, and I think is a non-trivial contributor to the massive drive-off-the-lot depreciation, since the real value of the vehicle is thousands of dollars lower, and they've figured out the cars sell better when the buyer things they're getting great financing (and those with poor credit scores just get absolutely wrecked, and make absurd amounts of money for financing providers if they keep up with payments for more than 24mo - in a 60mo loan somebody with mediocre credit is buying that car twice, and is basically never not upside-down).
By the same logic, my approach of acquiring $3000 and lower valued cars and nothing else is still the winning answer - The interest and dividends from my most conservative non-Roth stuff still dwarfs the maintenance cost to keep my old vehicles running... but I'm driving around vehicles that lose to Priuses in drag races (I was at full throttle bang shifting at valve float and losing ground - I don't think the guy in the prius was even at WOT), so my assumption is that anybody who has a use case to lease a newer vehicle is probably somebody who values the performance and luxury of newer vehicles a lot more than I do... at this point my fleet of dream cars is still frankly haughty and elitist (a ~2005 Tacoma, ~2007 Outback, and a C4 Corvette I can turn into a Roadkill Kart), but comes in under the price of any new luxury SUV for all three.
+1 to both paragraphs.
My car has been paid off for about 5 years now, but I have looked at both leasing and financing a Hyundai for a long time. An entire year of keeping track of my gas mileage, fuel costs, and repair costs is below
http://i1328.photobucket.com/albums/w521/6234987u02/Capture_zpskoznncfm.png
The N/As represent months before I started to look at repair costs. I don't think I had repair costs in those months. I could find out by digging in my safe for the paperwork, but it would only make the number more in favor of leasing anyway. Cost per month adds fuel costs and monthly repair costs which are on a separate excel page. The gallons, fuel costs, and repairs are exact to the cent. Nothing is estimated.
You can see the total annual cost (or, it will be on 4/17) is $3,496 which is $291/month total costs to operate not including insurance and registration.
I was looking at a cheap car to lease because it became evident early on that if I can lease a car for $170 a month, the use of regular grade gasoline, a factory warranty, and efficient fuel economy might balance itself out so that I would be paying the same amount of money out of pocket every month but have a brand new car.
I've since realized if I am going to spend $291 a month either way, I'd rather be driving a European car that I own than a Korean car that I lease. If I had to start over, I would buy a 10 year old Honda Accord. Premium gas, $120 oil changes, and $1200 tires suck.
I really wish I could go back in time to when GM was leasing Chevy Volts for $199/mo. $199 a month and no gas bill? That was an easy decision, I just couldn't hook one up to where I lived at the time.
I have mixed feeling about this.
First I have noticed that having the note paid off may be a great feeling, but
By the time it is paid off the technology of the vehicle is light years behind what is available.
Advances in technology mean little to the guy who fixes them outside the dealership. You aint taking this to your local guy, it's going to the dealership and you better hope they have kept up. Cha Ching !
Little things are gonna drive you crazy in the short term and they are going to go out. The window sticks, the lights are acting nuts and the front end is slowly wearing away all at once.
So in the long term, paid off is nice, but what is your technology and sanity worth to you?
All of that being said I have a 11 year old truck showing all of the above age symptoms and I will drive that mutha right in to the ground. At 188K I have recordes of every oil change, tire change and any unique work that has been done to it. At this point I would like to get 500K before I take it in and trade it for another just to see the salesmans face.
When I want a nice ride and some fun I drive the Mustang GT and enjoy the new stuff it has to offer.
Having the new Tech and features on a car depends on the person.
We still have people driving cars from the 80's and older don't we?
I have no issues with 90's era cars. I actually like them. All you really need is power options and a/c. GPS devices are cheap and available.
Again, maintenance is Key. I own a 2003 Toyota Camry that has everything I need. Runs like a top with just the routine oil change. Having no loan/note, I can use my extra income in things like toys (guns), travel, etc.
And for the record, new cars break too. I don't know why people think only old cars have problems. Once you're out of warranty, you WILL be paying more for that technology than a car that doesn't have it.
+
I really wish I could go back in time to when GM was leasing Chevy Volts for $199/mo. $199 a month and no gas bill? That was an easy decision, I just couldn't hook one up to where I lived at the time.
Oahu is one of those rare places where Prius/Insight/Volt vehicles would be truly brilliant - you can't run them out of gas on one trip, and it's expensive anyway... needless to say unless you're the po-po's idea of local speeding tickets rule out anything fast or fun, so I'm 100% with you on that.
The car I'm driving right now is older than I am (I suspect Euro might actually remember seeing it at some point - it's the Honda Accord that looks kinda like Wall-E), and there's a lot to be said for being able to fund other thing with that money - only one jarhead in 3rd Radio has, to my knowledge, in the past decade amassed more savings that I did in one enlistment there, and he spent 26 months on JSOTF-P rotations that pay ludicrous per diem on top of Hawaii BAH/FSA [and I frittered away 30% of mine funding medical school for my better half]... it's a conscious decision, but I'm not at the phase where I'm trying to decide what actually nice vehicle to own, since I'm probably only going to get one that isn't completely dictated by having to install a set number of baby seats - I just couldn't find a used 5-dr WRX that was in my price range (and hadn't been crashed), and Subaru refused to make a WRX/STi wagon with a sunroof AND 6-speed manual so new didn't make sense.
There is some tech on cars that if they're used for work, or the value/luxury of the car is treated as the offset cost for living somewhere with a longer commute (saving $80k on a house and spending half that spread across two vehicles to commute out of would be worth it for a lot of people here - those farther houses tend to be more less urban, and have more space for garages/safes/awesomeness), so even though it's a depreciating asset there is still merit for spending a fraction on a car if you're saving a lot on a house and consequently spending more time in the car going to and from work - and then there's the whole car guy thing. I think the average Californian takes this way too far, but there is still valid logic here to a point. Couple this with capability being a thing that costs money (especially for stuff with some off-road capability) and then more recent vehicles start to make more sense since even a mid-range late model Jeep is frankly a step on compared to an old stock CJ.
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